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There are various methods of debt recovery in Nigeria. A debt exists where a certain amount of money is owed from one person (the creditor) to another (the debtor) due to certain agreements. Business relations are created between foreign businesses and Nigerian counterparts. Contracts are entered and executed between parties for various reasons and when there is a breach or failure for party to perform his part of the contract, the aggrieved party can institute an action in court for debt recovery. Debt recovery can also arise in loan transactions and not just failed business-related transactions.

It is important to state that there is a statutory time limit upon which actions or steps to recover debt can be taken in Nigeria. The limitation period for debt recovery that arose from a simple contract is six (6) years excluding the year the contract was entered and executed, as provided under Section 21 (1) (a) of the Limitation of Action law. Therefore, an action for debt recovery becomes statute-barred when the limitation period of 6 years has elapsed.

There are lawful procedures to recover debts owed without violating the rights of parties in issue. Some of these procedures are discussed below:

  • Letter or Demand or Claim: The first step is to write a demand letter to the debtor, warning about the consequence to ensue if payment is not received within a stipulated time (usually 7 days). The demand letter will also contain steps to be taken where payment is not received. Pursuant to the High Court of Lagos State (Civil Procedure) Rules 2019, parties are mandated to write a Letter of Claim, where legal action is contemplated for a debt recovery.


  • Arbitration: This is more suitable where the parties in debt recovery disputes are corporate organizations. The proceedings can be done privately without resorting to court actions. In this procedure, parties submit voluntarily to it and the arbitrator(s) makes a binding decision on the debt recovery. It is important to state that unless parties have by their own agreement or contract previously agreed to submit to arbitration in the event of dispute, no party can be compelled to submit to an arbitration.



  • Debt recovery action in Court: Where overdue debts arose from a service contract or loan agreement, the requirements for the enforcement of the right of the aggrieved party r or lender are usually specified and provided for under the commercial contract or loan agreement. It is the Court that has the power to hear and determine an action for debt recovery and enforce payment against a stubborn debtor. A debt recovery action will be commenced and seeking damages for breach of contract. It is also possible to bring an application for the preservation of the moveable and immoveable property of the debtor pending the final determination of the Court process. Where the debtor is a company, a winding-up proceedings may be commenced along with the action for Summary Judgment against the debtor.


  • Debt recovery under Federal High Court Rules where the debtors have no defense: Order 12 of the Federal High Court Rules provides that a claimant may apply summarily to Court for issuance of a writ of summons to recover a liquidated sum and the application will be accompanied with an affidavit stating the grounds upon which the claim is based and that the defendant has no defense on the merit to the claim. The Court would enter the claim in the “undefended list” if it is satisfied that the defendant has no defense to the claim.


  • Recovery of Debt from an Insolvent Company and Fraudulent Directors: The Company and its Directors will be served with a letter of demand demanding full payment of the debt within 7 days of receipt of the letter failing which an action will be commenced against the Company and its Directors to recover the debt, including damages for breach of contract and winding up proceedings against the company for inability to pay its debts.

If the debtor fails to pay the debt within 7 days as provided in the letter of demand, a summary judgment proceeding is commenced against the debtor and its Company to recover the debt and an application for security or attachment of the moveable and immoveable property of the debtor pending the determination of the proceeding is brought before the Court.

Winding Up Proceedings: A statutory letter of demand for winding up of the Company for inability to pay its debts may also be served on the Company and upon expiration of the statutory period of 3 weeks, a winding-up proceedings commenced against the Company to liquidate and sell its assets.

Criminal Complaint To Security Agencies: Although security agencies such as Nigerian Police and Economic and Financial Crime Commission (EFCC) are not empowered to collect debt, however, some of debts that are derived from the commission of crimes can be reported to security agencies. The section 14(2) of the EFCC (Establishments) Act enables the commission to compound an offense. Therefore, if any individual or Company or its Directors obtained services or products from any party with intent to defraud or induced the contract by false pretense, this constitutes an economic crime for which the foreign party may petition the Economic and Financial Commission (“EFCC”) and criminal investigation maybe be conducted against such entity for their assets to be frozen towards payment of the debt and criminal prosecution or either of the two.

Limitations to debt recovery

There are some limitations to the time within which an action for recovery of debt can be taken. These circumstances include the followings:

  • As earlier stated, a simple contract or quasi-contract will no longer be heard by the court after the expiration of six years from the date the debt became due and actionable.
  • Where the debt has been resolved through alternative dispute resolution and the arbitration award delivered cannot be brought before any court after the expiration of six years from the time the cause of action arose.
  • A debt that arose as a penalty or forfeiture cannot be recovered through a court after the expiration of six years from the date the debt became due.
  • A debt owed to a company by a member (shareholder) of the company as stated in the articles of association of the company, cannot be recovered from such shareholder after the expiration of six years from the date his debt became due.
  • An action for account or recovery of Seaman’s wages cannot be allowed in any court after the expiration of six years from the date such became due.
  • A principal sum of money secured by a mortgage or charge on land or on any movable property (other than ship) cannot be recovered after the expiration of twelve years from the date when the right to recover such sum accrued.

Where these circumstances exist, a court will not entertain a case for debt recovery when such debt has become statute-barred.

In the Supreme Court of Nigeria case between National Social Insurance Trust Fund V Klifco Nigeria Limited SCC 288/2015 per Chukwuma- Eneh JSC held that;

“What I must further state as settled law is that the Law of Limitation here has not extinguished the right to the debt; the instant debt has not been extinguished but it merely bars the right to recover the debt because of lapse of specified period of time in the law of Limitation from the accrual of cause of action. However, where there is acknowledgment of debt, which must be in writing signed by the party that is liable, the right to recover the debt by action is revived and what constitutes acknowledgment in such causes is a matter of fact in each case…”

In conclusion, debt recovery involves making legal demand first by issuing a demand letter or Letter of Claim to the debtor in line with the provisions of the law, and when the debt remains unpaid, litigation can be explored for the purpose of recovering the debt. There are circumstances where security agency may be involved in the recovery of debt, this circumstance may arise where the accumulation of such debt entails a commission of an offense.


By Resolution Law Firm


Tel: +2348099223322